The darkest hour & the raising leadership: An overview of Spanish politics in the aftermath

Pedro Sánchez, who prides himself in being a Master of Resilience, could have found gold in the darkest hour of the Covid-19 outbreak in Spain. 18 million people watched him on live TV on Saturday 14th (80% of market share, even larger than the Spanish victory in the 2010 World Cup) as he was declaring the state of alarm. In addition, he has finally managed to get the main opposition party, the conservatives of the People’s Party behind his relief package against the effects of coronavirus.

However, the last few days have seen a worried Sánchez, who has struggled to cope with some of Spain’s regional governments that were urging the government to take a more rapid and decisive action to stop the spread of COVID-19. Especially relevant has been the pressure from Madrid’s regional president and mayor, both members of the conservative People’s Party, who have been perceived to be anticipating emergency measures as Madrid was worst hit among the regions, but also from others such as the Basque Country and Catalonia, which have protested against the suspension of devolved powers over security and health affairs.

The declaration of Spain’s state of alarm – the second time in the last forty years that a national government has had to use this constitutional prerogative – was the result of an intense debate within members of Sánchez’s cabinet. According to media reports, on the one hand, Podemos and some of the Socialist ministers wanted the government to adopt convincing measures to assist workers who would be affected by the economic downturn and the ongoing coronavirus crisis. On the other, the Socialist ministers of Economy and the Treasury – Nadia Calviño and María Jesús Montero – were reluctant to the state of alarm declaration because of its potential effects on Spain’s economic recovery, still fragile if considered the above 14% level of unemployment.

Amid public criticism over cabinet disagreements and a slow response to the unfolding crisis, Sánchez managed to recover the political lead on Tuesday with a €200 billion relief package that was announced in what has been considered as

one of Sánchez’s most convincing public speeches, in which he showed a combination of the needed gravity and a high dose of empathy.

Later, on Wednesday, Sánchez appeared in front of a near-empty Congress (most MPs were instructed to attend remotely) to deliver a speech focused on the “united we stand, divided we fall” motto. Sánchez explained the measures adopted by the government and warned that, although GDP will inevitably fall in 2020, “if we manage to maintain employment levels, the recovery will be fast.” Pablo Casado, leader of the conservatives, and figure who had been vocal in his criticisms over inaction by the government during the weekend, finally endorsed the government’s emergency package, as did the rest of parliamentary groups with the sole exception of the far-right party, VOX.

Sánchez’s relief plan to fight the effect of coronavirus amounts to 20% of Spain’s GDP – compared to Germany’s 16.7%, France’s 12.8% and Portugal’s 4% of GDP – and is the largest spending commitment since the return to democracy in the 1970s. The main part of the plan is the €100bn of a State guarantee scheme in order to “ensure liquidity for all Spanish companies, particularly smaller and medium ones”. Sánchez also announced a moratorium on mortgage payments for people whose income has been hit by the crisis, a similar moratorium for utility bills and €17 billion aimed at supporting the most vulnerable groups to the effects of the pandemic – “no one is going to be left behind” has been one of the most repeated sentences by Sánchez.

The decree also makes it easier for people to be temporarily suspended from work, rather than laid off, and to retain all of their benefits. Likewise, some social security payments will be suspended and there have also been measures aimed specifically at self-employed. The temporary layoffs measure (known by the Spanish acronym ERTE) has been one of the key relief measures and many of Spain’s main companies have already used this to avoid a liquidity trap.

The plan also includes a section in order to prevent companies from outside the EU from taking over Spanish businesses in strategic sectors. In this sense, the decree suspended all investments resulting in a foreign public or private investor owning 10 percent or more of the shares of a Spanish firm or controlling the company’s board of directors. As Politico reported on Wednesday evening: “Stricter investment screening is a leitmotif in times of crisis. After the eurozone crisis, countries including France, Germany and Italy changed anti-takeover rules to prevent foreign groups, particularly from China, from buying-out strategic companies weakened by the crisis. Selling family jewels under the pressure of a crisis can be painful: Southern member countries pressured to do it after the eurozone crisis know this very well.”

Political unity has been rare in recent times in Spain. The backing of the main center-right opposition parties (People’s Party and the liberals of Ciudadanos) to Sánchez’s emergency plan could be an opportunity to forge a parliamentary ‘entente cordiale’ that could bring the stability that Sánchez’s government has not enjoyed up to date.

Despite this, Sánchez has also faced wide criticism for his management of the crisis so far. The main criticism has been directed at the late reaction of the government, considering that what was happening in Italy for two weeks was a clear indicator of the situation Spain was going to get into. Also, that the government chose propaganda over safety when it allowed last March 8th a massive demonstration in the streets of Madrid, where some senior members of the cabinet and Sánchez’s wife herself allegedly got infected.

In addition, some parties are taking the opportunity to push their own political agenda. Podemos is trying to make of the popular praise towards health workers (shown every evening from Spaniard’s balconies) a general cause against private healthcare providers. Vox has said that the state of alarm is an excuse to give the government the powers of an authoritarian regime. The Catalan independentists, which hold the region’s government, have undertaken an international smear campaign against the Spanish government for not having adopted tougher measures – including a letter sent by Catalan president Quim Torra to many European governments explaining his vision of the crisis management.

However, Sánchez seems to have gained political momentum with the relief package and obtained wide support across the political spectrum. What he does with this political capital will depend much on how the COVID-19 crisis evolves – and that his measures to “flatten the curve” start to deliver.

The government already knows that this crisis is going to condition the rest of the political term. The approval of the 2020 national budget was the biggest obstacle facing the government before the COVID-19 crisis erupted in order to kick start its ambitious political agenda. Following the approval of the relief package, Sánchez may be looking now to the 2021 budget with a radically different scenario. On Wednesday he took the opportunity to announce that the next national budget should be “extra-social”, aiming to reinforce the Public Health System and overall public services. “This will be a national reconstruction budget to protect all”, said Sánchez at Congress.

But it is not clear how Sánchez’s social agenda is going to cope with an increased budget deficit and the EU’s expenditure ceiling. On the other hand, tax measures to increase revenue and increase social spending will be tough

to implement while corporations are struggling, not to mention the civil population. In this sense, the COVID-19 crisis poses both an opportunity and a threat to the left-wing coalition government’s agenda: following the crisis, more citizens (and political parties) will be receptive to expanding social policy, more government spending and tax increases; however, the economy may enter a prolonged recession and unemployment could return to the post-2008 crisis levels (it peaked above 25% in 2012-2013).

Politically, the COVID-19 crisis may present an opportunity for Sánchez to readjust his alliances and avoid the dependence on the far-left, Catalan and Basque nationalists. This could be crucial for Sánchez’s own survival if austerity is finally the path ahead and he still seeks to carry out part of his political agenda (Energy transition, digital transformation, Territorial cohesion). A rapprochement with the People’s Party and Ciudadanos will be needed and in the mid-term, this could bring tension within the government coalition. Although this possibility still seems remote, a prolonged crisis could, at last, unite a large parliamentary majority that passes much-needed reforms.

1. While it is true that in recent days we may have witnessed the most Churchillian Sánchez, as he has finally been successful at the time of conveying a Statesman narrative while confronting those more orthodox at his own cabinet and attacks from both extremes of the political spectrum, it remains to be seen whether he will be able to forge a long-standing leadership.

2. As a result of the COVID-19 crisis, some kind of ‘national entente’ may happen, although just in the form of parliamentary support and – in the short term- in order to pass a government budget that secures EU clearance.

3. The latter may ease things at the time of imposing austerity measures while keeping a certain social agenda and priorities.

The views expressed in this article are those of the author(s) and not necessarily the views of FTI Consulting, its management, its subsidiaries, its affiliates or its other professionals.